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Finance in America: Promoting inequality and waste

August 1, 2014 1 comment

from Dean Baker

In the crazy years of the housing boom the financial sector was a gigantic cesspool of excess and corruption. There was big money in pushing and packaging fraudulent mortgages. The country paid a huge price for the financial sector’s sleaze.

Unfortunately, because of the Obama administration’s soft on crime approach to the bankers who became rich in the process; the industry is still a cesspool of excess and greed. Just to be clear, knowingly issuing and packaging a fraudulent mortgage is a crime, the sort of thing for which people go to jail. But thanks to the political power of the Wall Street, none of them went to jail, and in fact they got to keep the money.

Since the penalties for ripping off people are trivial to non-existent, the financial sector finds this to be a much more profitable line of business than actually providing financial services. The New York Times recently reported on the boom in the subprime market for auto loans featuring many of the same abusive practices we saw in the subprime mortgage market during the bubble years. Lenders are slapping on extra fees, changing the terms after contracts are signed, and doing all the other fun things we have come to expect from leaders in finance. The used car industry was sufficiently powerful that it was able to gain an exemption from being covered by the Consumer Financial Protection Bureau. Read more…

US wealth inequality increased significantly from 2003 through 2013 (2 charts)

from David Ruccio

According to a new study by Fabian T. Pfeffer, Sheldon Danziger, and Robert F. Schoeni,

Through at least 2013, there are very few signs of significant recovery from the losses in wealth experienced by American families during the Great Recession. Declines in net worth from 2007 to 2009 were large, and the declines continued through 2013. These wealth losses, however, were not distributed equally. While large absolute amounts of wealth were destroyed at the top of the wealth distribution, households at the bottom of the wealth distribution lost the largest share of their wealth. As a result, wealth inequality increased significantly from 2003 through 2013; by some metrics inequality roughly doubled.

Read more…

Piketty phenomena – “Riding a Wave of Growth: Global Wealth 2014” (chart)

from Edward Fullbrook

The Boston Consulting Group (BCG) is a leading player in what is called “the global wealth-management industry” and which in effect is plutonomy’s tactical cavalry in financial markets. BCG have just “released” a report disclosing that in the year 2013 the wealth of the world’s people worth $100 million or more increased 19.7 percent.  That compares, they say, to 3.7 percent for the wealth of sub-millionaires.  Naturally they are overjoyed at this latest redistribution.

“Wealth” meaning what? Like most people and as also with the symbol “capital”, they use “wealth” to stand for two different things, and also like most people, economists especially, they often lose track of which referent they are trying to talk about.  But we can overlook that here because the 19.7 percent and 3.7 percent refer to financial wealth and, with exceptions, that is all plutonomists and their agents really care about.

The report documents how the upward redistribution of wealth to the 0.1 percent and especially to the 0.01 percent is accelerating, in other words, how the plutonomist programme (pre-Piketty it was never reported by mass media)  is now restructuring the world at an even faster rate.  Here is a taster of how they see the next five years.  Read more…

Categories: inequality, Plutonomy

“Piketty and Plutonomy: the Revenge of Inequality” – 1

from Edward Fullbrook

Bank of America Merrill Lynch has released a report titled “Piketty and Plutonomy: the Revenge of Inequality”.  Here is a bit about it from  the South China Morning Post.

It is interesting but not wholly surprising to see that Hong Kong has topped another index which it may not be so proud of. It leads the rankings of an analysis which shows the wealth of the uber-rich as a proportion of an economy’s gross domestic product. According to a Bank of America Merrill Lynch report, the net worth of Hong Kong’s billionaires in 2013 represented 76.4 per cent of the city’s gross domestic product.

Sweden’s billionaires were a distant second accounting for 20.7 per cent of GDP. Next was Russia with 20.1 per cent, Malaysia 18 per cent, Israel 18 per cent, Philippines 16.5 per cent and Singapore 16.3 per cent. US billionaires accounted for 13.8 per cent of GDP, Britain’s 6.2 per cent, China’s 3.5 per cent and Japan’s 1.9 per cent.

The report, titled Piketty and Plutonomy: the Revenge of Inequality, examined Thomas Piketty’s highly successful tome, Capital in the Twenty-First Century. Analysis of plutonomy – where economic growth is powered by and largely consumed by the wealthy few – is critical, the authors say, for understanding the complexities of today’s markets, as they go on to enumerate 10 implications of plutonomy for investors.

Piketty projects that the global private wealth to national income ratio will rise from 440 per cent in 2010 to record highs of 500 per cent by 2030, levels that were last seen in 1910. Hong Kong is also highly placed in terms of income inequality when ranked in terms of relative Gini coefficient levels. Hong Kong is third after Colombia and Brazil. One of the report’s conclusions is that unless there is policy intervention, in the longer term “emerging markets are likely to become entrenched and egregious plutonomies”.

more on Bank of America’s plutonomy report soon

Categories: inequality, Plutonomy

All inequality all the time

from David Ruccio

It’s clear we are in the midst of an acute period of inequality: not only of grotesque levels of economic inequality (which are now well documented) but also of a wide-ranging discussion of the conditions and consequences of that extreme inequality (which appears to be taking off).

There are, of course, the deniers, like my dear friend Deirdre McCloskey. What inequality, is her mantra. The only thing that matters is economic growth, such that the amount of stuff people have today is much more than they’ve had throughout much of human history. OK, but that doesn’t tell us much about how that growth took place (it’s the surplus, Deirdre) or what it’s consequences are (on the majority who actually produce the surplus versus the tiny minority who appropriate it).

And then there are those who are actually thinking seriously about inequality, some of whose work is published in the latest issue of Science (a lot of which, unfortunately, is behind a paywall). Leave aside the silly article on econophysics (really, the existing distribution of income is a kind of “natural inequality,” which is what you would get from entropy?), the article that focuses on the psychological pathologies of the poor (what about those of the rich?), and the fact that all the economics is narrowly confined to mainstream theories (which have done more to deflect attention from, as against the wide range of heterodox theories that have actually focused on, inequality over the course of the past three decades). Just the fact that a special issue of such a prestigious journal is devoted to the problem of inequality tells us something about how it has risen to the top of our agenda. Read more…

Affluent Rules

May 9, 2014 4 comments

from Peter Radford

A couple of weeks ago I led off an article with a quote from a new Gilens and Page paper – linked to in the article. Subsequently I have acquired and waded through the Gilens book “Affluence & Influence”.

Time for a few more quotes, all from page 81 of the aforementioned book:

“The complete lack of government responsiveness to the preferences of the poor is disturbing and seems consistent with the most cynical views of American politics. These results indicate that when preferences between the well-off and the poor diverge, government policy bears absolutely no relationship to the degree of support or opposition among the poor.” 

“For those proposed policy changes on which middle- and high-income respondents’ preferences diverge by at least 10 percentage points, policy responsiveness for the 90th percentile remains strong … but is indistinguishable from zero for the 50th percentile”

“But when their views differ from those of more affluent Americans, government policy appears to be fairly responsive to the well-off and virtually unrelated to the desires of low- and middle-income citizens.”

In the context of our ongoing debate over inequality I think these quotes stand for themselves. Read more…

Categories: inequality, Plutonomy

Economic policy in a post-Piketty world

April 25, 2014 19 comments

from Dean Baker

Thomas Piketty’s new book, Capital in the 21st Century, has done a remarkable job of focusing public attention on the growth of inequality in the last three decades and the risk that it will grow further in the decades ahead. Piketty’s basic point on this issue is almost too simple for economists to understand: if the rate of return on wealth (r) is greater than the rate of growth (g), then wealth is likely to become ever more concentrated.

This raises the obvious question of what can be done to offset this tendency towards rising inequality? Piketty’s answer is that we need a global wealth tax (GWT) to redistribute from the rich to everyone else. That is a reasonable solution if we’re just working out the arithmetic in this story, but don’t expect many politicians to be running on the GWT platform any time soon.

If we want to counter the rise in inequality that we have seen in recent decades we are going to have to find other mechanisms for reversing this upward redistribution. Specifically, we will have to look to ways to reduce the rents earned by the wealthy. These rents stem from government interventions in the economy that have the effect of redistributing income upward. In Piketty’s terminology cutting back these rents means reducing r, the rate of return on wealth.

Fortunately, we have a full bag of policy tools to accomplish precisely this task. The best place to start is the financial industry, primarily since this sector is so obviously a ward of the state and in many ways a drain on the productive economy. Read more…

“Meritocratic Extremism”

April 14, 2014 2 comments

from Edward Fullbrook

Merijn is ahead of me as I have only just ordered Thomas Piketty’s Capital in the Twenty-First Century. The book is receiving masses of favorable media attention in the West, including from The New Yorker, the Financial Times, the Economist and The Observer where yesterday Piketty and his book occupied the cover of the newspaper’s review section. This attention is surprising given the book’s central message (one often expressed on this blog), that capitalism has now failed the world and that inequality is now accelerating at a very dangerous pace and that the rule of the ultra-rich over the everyone else is a form of gangsterism. The Observer’s feature writer went to the École d’économie de Paris to interview Piketty, and here are a couple of quotes.

Read more…

Chart from the 2014 Economic Report of the President of the USA

from David Ruccio

ERP-productivity

This chart, from the 2014 Economic Report of the President [pdf], illustrates the Read more…

Trickle-down economics — total horseshit

March 3, 2014 15 comments

from Lars Syll

Reaganomics_Trickle_Down

As we’ve been aware of lately there isn’t much trickle-down going on in the USA. Unfortunately we can also see the same pattern developing in many other countries. Take for example Sweden. The figure below shows how the distribution of mean income and wealth (expressed in year 2009 prices) for the top 0.1% and the bottom 90% has changed in Sweden for the last 30 years: Read more…

Inequality

March 1, 2014 9 comments

from Peter Radford

I am preparing a talk on inequality here in America, and so have been re-reading the Piketty and Saez work. Amongst the more eye-opening facts I have come across is the assertion, by Saez, that the surge in the top 1% incomes is so large that the growth of the bottom 99% amounts to only half the average [mean].

Think about that for a moment.

It would be like walking into a room full of people two feet tall with one thirty footer in the corner. The mean average is meaningless in such circumstances. We are all taught that in statistics class, but to come across such an egregious example in a dataset as large as all US tax returns is astonishing. Read more…

Guard labor (chart)

February 18, 2014 2 comments

from David Ruccio

17greatdivide-img-tmagArticle-v3

Read more…

Categories: inequality, Plutonomy

Opportunity Class

February 5, 2014 4 comments

from Peter Radford

America is in such a funk nowadays that sometimes it can get exasperating. The disconnect between what average people believe and hope for, and what seems to dominate our political class is gaping wide open. To me the cause for this disconnect is obvious, and our rampant inequality sits squarely at the heart of the problem. Yet getting some of my erstwhile progressive friends to utter the word inequality has proven to be extremely difficult.

Why?

Because, to their ear it renders a harsh image of envy. And, as we are all taught, since America has no class system, and since America is the land of opportunity, and since in America hard work can get you anything, envy is simply that: a venal sentiment that debases the person harboring it and signifies that they are, somehow, un-American.

This is, of course, twaddle.

Until we are able to talk about inequality without immediately plunging into apologies for being envious we are stuck with what appears to be our favorite surrogate: opportunity. We need, apparently, to restore opportunity in this land of opportunity. Presumably between now and that restoration we are the land of something else, but we won’t give it a name just in case it sounds bad.  Read more…

Categories: inequality

The pernicious impact of the widening wealth gap

January 21, 2014 3 comments

from  Lars Syll

The 85 richest people on the planet have accumulated as much wealth between them as half of the world’s population, political and financial leaders have been warned ahead of their annual gathering in the Swiss resort of Davos.

The tiny elite of multibillionaires, who could fit into a double-decker bus, have piled up fortunes equivalent to the wealth of the world’s poorest 3.5bn people, according to a new analysis by Oxfam. The charity condemned the “pernicious” impact of the steadily growing gap between a small group of the super-rich and hundreds of millions of their fellow citizens, arguing it could trigger social unrest.

inequality-cartoon2

It released the research on the eve of the World Economic Forum, starting on Wednesday, which brings together many of the most influential figures in international trade, business, finance and politics including David Cameron and George Osborne. Disparities in income and wealth will be high on its agenda, along with driving up international health standards and mitigating the impact of climate change.

Oxfam said the world’s richest 85 people boast a collective worth of $1.7trn (£1trn). Top of the pile is Read more…

85 people versus 3.5 billion people – the OXFAM report

January 21, 2014 9 comments

from Edward Fullbrook

In the run-up to the annual Davos get-together of the world’s hyper-rich and their most-favoured agents, OXFAM has issued a report titled “Working For The Few”.  Commenting on it, today’s Guardian notes that

. . . if they fancied a change of scene then the richest 85 people on the globe – who between them control as much wealth as the poorest half of the global population put together – could squeeze onto a single double-decker.

The OXFAM report emphasizes how democracies round the world are increasingly under threat due their subversion by the ultra-rich. Here is a key passage from the report.  Read more…

Economic winners and losers in the US since 2007

from David Ruccio

1230-sub3-rattner-1

As Steven Rattner explains, Read more…

Inequality: government is a perp, not a bystander

December 28, 2013 4 comments

from Dean Baker

In his speech on inequality earlier this month President Obama proclaimed that the government could not be a bystander in the effort to reduce inequality, which he described as the defining moral issue of our time. This left millions convinced that Obama would do nothing to lessen inequality. The problem is that President Obama wants the public to believe that inequality is something that just happened. It turns out that the forces of technology, globalization, and whatever else simply made some people very rich and left others working for low wages or out of work altogether. The president and other like-minded people feel a moral compulsion to reverse the resulting inequality. This story is 180 degrees at odds with the reality. Inequality did not just happen, it was deliberately engineered through a whole range of policies intended to redistribute income upward.  Read more…

‘Tis the season—for inequality

December 6, 2013 2 comments

from David Ruccio
USA
inequality+gaps

Pope Francis challenged the theory of trickledown economics. Now, President Obama has announced his intention to focus on the problem of inequality.

On my reading, Obama’s speech borrows heavily from the ideas in Jacob Hacker and Paul Pierson’s Winner-Take-All Society and Joseph Stiglitz’s The Price of Inequality. Both the best and the worst parts.  Read more…

The End Is Nigh!

October 3, 2013 9 comments

from Peter Radford

The end, that is, of Reaganism.

The Republicans have shut down government because no one is taking their demand that health care reform is abandoned seriously.

In a nutshell the fight is over the part of reform that increases taxes on the top 1% of income earners, reduces subsidies to insurers within the Medicare system, and thus can afford to provide health care to tens of millions of previously uninsured people. That’s it. The Republicans failed to defeat these things during the law’s passage; the law stood up to challenge in the Supreme Court; and subsequently a presidential election was fought, with the winner being the advocate of the law. That’s pretty conclusive. The reform has been constitutionally and electorally approved.

But the extremists now running the Republican party think they can ignore all that. They abhor reform and so have taken to insurgency. Their defense of the wealthy to the detriment of the poor and the sick is open class warfare. It can be construed in no other way. Unless the extremists go through some radical change, their intransigence and defense of the privileged will lap over into a fight over the debt ceiling.

Which is odd, isn’t it? Because the privileged stand to lose the most when our credit worthiness is undermined. They are, after all, the holders of most of our collective wealth.

I see this in historical terms. Read more…

Stiglitz explains how patent protection both slows growth and increases inequality

July 16, 2013 Leave a comment

from Dean Baker

Very nice column from one of my favorite Nobel prize winning economists. Stiglitz explains some of the ways in which patent protection impedes growth and increases inequality.

It’s great to see Stiglitz raising alternatives to patents for financing research, but I would disagree with the prize for patent buyouts that he proposes as being the best alternative. I have always preferred a system of direct upfront funding, which could be done through private firms operating on long-term contracts. In response to a number of requests, here is the argument in brief. (Here‘s a little longer discussion.) Read more…

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